Credit Update: SoftBank Group is going all-in on AI with medium-tenor USD bonds up to 8+%

Earlier this year, we updated our view of SoftBank’s credit profile after the group’s FY25 results (ending 31 March 2026).

Credit Update: 7+% yields offered by SoftBank’s medium-tenor USD bonds.

Since then, the conglomerate has released its 1Q2026 (ending 30 June 2026) results; in the article below, we provide our latest take on SoftBank’s results and what it means for the group’s credit profile.

1Q2026 Results: Stable operating businesses, but earnings again hinged on the investment portfolio

For the quarter ending 30 June 2026 (1Q2026), SoftBank reported a 10.9% YoY increase in revenue to ¥2.0T, with gross profit up 10.4% YoY to ¥1.1T (1Q2025: ¥1.0T). This reflects earnings contributions from SoftBank Corp’s telecommunications operations (SBKK), LY Corporation’s internet ecosystem (LINE) and Arm’s semiconductor IP business. That said, cash generation weakened. Adjusted operating cash flow (OCF), which we define as operating cash flow before interest and tax, fell to ¥52.3B (1Q2025: ¥305.2B), mainly due to higher operating costs.

Net income attributable to shareholders fell 17.7% YoY to ¥347.3B (1Q2025: ¥421.8B), despite a ¥1.86T surge in investment gains (1Q2025: ¥0.5T). Notably, its stake in Intel (¥2.0T at 30 June 2026) recorded a valuation gain of ¥1.33T, making up roughly 96% of the ¥1.4T gain within the Investment Business of Holding Companies segment (SoftBank’s direct investments). Within the Vision Funds, ByteDance added ¥358.4B, roughly 78% of the segment’s ¥460.1B gain. These gains were offset by higher selling, general and administrative expenses of ¥528.7B on higher staff costs, a doubling of finance costs to ¥328.7B, alongside currency and derivatives-related losses of ¥538B (1Q2025: ¥372B gain).

Looking ahead, we expect SoftBank’s reported earnings to remain largely driven by the valuation movements in its investment holdings, which largely consist of AI and technology companies.

Arm Holdings and OpenAI remain the core anchors of SoftBank’s investment portfolio

SoftBank Group’s investment portfolio remains the crux that underpins the group’s credit profile. As of 30 June 2026 (1Q2026), the adjusted equity value of its holdings stood at ¥83.1T; approximately 69% of these holdings (¥57.3T) comprised publicly listed and market-observable assets, while the remaining 31% (¥25.8T) consisted of private, illiquid holdings, most notably OpenAI.

The portfolio remains heavily concentrated in Arm and OpenAI. The former is the largest holding at approximately 60% of adjusted equity value, while the latter represents around 18% of adjusted equity value. Since our last update, these two names remain the key drivers of SoftBank’s NAV and credit profile. Other listed and unlisted investments account for roughly 15% of the portfolio, while SoftBank Vision Fund 1 (SVF1) and SBKK contribute 4% and 3%, respectively. This gives SoftBank significant exposure to long-term AI growth, but it also means most holdings are likely to rise and fall together.

While Arm’s share price movements do not flow through to profit, they drive NAV and loan-to-value (LTV) metrics. Given it represents 60% of SoftBank’s holdings, any fluctuation will lead to an outsized impact on the group’s credit profile. We highlight that SoftBank holds 90% of Arm’s outstanding shares, which severely impairs the group’s ability to sell its holding to raise liquidity without significantly moving the price. Given this “restriction”, SoftBank typically borrows against its shares for funding requirements, which adds to the group’s interest-bearing debt while increasing leverage.

SoftBank’s to-date investment in OpenAI totals US$44.6B as of 30 June, a figure poised to climb to US$64.6B post its final investment tranche on 1 October 2026. Its current stake is carried at US$89.6B, resulting in an unrealised gain of US$45B. In our last update, we flagged how the potential IPO of OpenAI would lead to transparent pricing and valuation of SoftBank’s stake, increasing the group’s funding liquidity. Since then, OpenAI’s IPO has been postponed, leaving its valuation subject to the private market valuation, which is less transparent and updated compared to public market pricing. That said, we think it is unlikely that SoftBank will divest its OpenAI stake anytime soon given its appetite for investing in subsequent funding rounds.

Finally, we flag the group’s increasing expansion into AI infrastructure. In the US, it is developing a 10 GW (gigawatts of power capacity) campus in Ohio while also concurrently building a Texas data centre for OpenAI. In France, it plans 5 GW of capacity, with a first phase guided at €45B (about ¥8T) for 3.1 GW by 2031 and has already secured 1 GW of power for the initial site. ¥969B went into these US and French assets in 1Q2026 alone. In our view, this spending adds another AI-linked exposure on top of Arm and OpenAI, funded mainly through the group's own borrowing, as SoftBank has not disclosed project-level financing for either country.

On balance, the group’s investment portfolio remains heavily concentrated in AI-related companies (especially Arm and OpenAI). The increase in AI infrastructure spending will further strengthen its concentration in the AI theme. We continue to stress that any deterioration in sentiment or progress in the AI theme would have an outsized negative impact on SoftBank’s NAV and funding flexibility, while increasing its leverage and softening the group’s credit profile.

Manageable liquidity position against near-term obligations, with increasingly illiquid asset coverage

As of 30 June 2026 (1Q2026), SoftBank holds ¥3.9T in cash and equivalents. This compares against the total interest-bearing debt of ¥26.6T, of which ¥7.6T is due within the next twelve months. We expect SoftBank to refinance much of this ¥7.6T. Post-quarter, SoftBank raised a further ¥1T in retail bonds and an additional US$11.1B of dollar and euro notes.

As an investment holding company, NAV and LTV remain the key credit metrics to watch. NAV reached a record ¥72.3T (31 March 2026: ¥40.1T), which further strengthens its asset coverage. However, we stress that this is highly sensitive to markets, especially as its concentration in AI (Arm and OpenAI) has grown since our last update.

LTV (net debt/equity value of holdings) improved to 13% as of 1Q2026, compared to 17% as of 31 March 2026. We estimate a severe increase to 35% LTV would require an approximate 81% decline in the combined value of both holdings (as of 30 June 2026 values, with debt held constant)— a scenario consistent with a broad-based AI valuation collapse. Per our previous article, management has defended this ceiling through past cycles, including COVID-19, via asset sales and share-backed financing. Nevertheless, we highlight that this headroom is now tied mainly to two assets: Arm and OpenAI. A correlated AI downturn is the ever-present risk that will weaken SoftBank’s LTV and NAV and correspondingly soften the group’s credit profile.

SoftBank’s monetisation flexibility, historically a crucial support, remains rather constrained: Arm's roughly 90% SoftBank ownership limits disposal without market impact, while OpenAI's postponed IPO further complicates its monetisation ability. In sum, the concentration risk we flagged previously has become more pronounced: Arm makes up ~60% of holdings as of 30 June 2026 compared to ~40% as of 31 March 2026, due to the share price rally in Arm.

Table 1: Outstanding USD Bonds